In the face of operational issues across its gathering and processing systems in the third quarter, Targa Resources Corp. is progressing projects in the Permian Basin to meet the infrastructure needs of producers anticipating strengthening export demand.
Operations commenced at Houston-based Targa’s Greenwood plant in the Permian’s Midland sub-basin ahead of schedule in October and have been quickly ramping up, according to management. Work continues on the 275 MMcf/d Greenwood II processing plant, which is expected to begin operations in late 2024.
Construction is also progressing on the Wildcat processing plant in the Delaware sub-basin of the Permian, which would boost processing capacity by 275 MMcf/d in 1Q2024, when operations could begin.
Targa management also said work is progressing on the 230 MMcf/d Roadrunner II and 275 MMcf/d Bull Moose facilities. The plants remain on track to begin operations in the first and second quarters of 2024, respectively.
“The underlying outlook is that we’re very confident Permian volumes are going to continue to grow, not just for 4Q2023, but as you look out to 2024, 2025 and beyond,” CEO Matthew Meloy said on the quarterly earnings call with investors.
Permian Strong
Targa continues investing in the Permian where inlet volumes were flat in the quarter as the 2% sequential increase in Midland volumes was offset by reduced Delaware volumes.
Targa remains confident in Permian volume growth in the Midland and Delaware despite underlying growth in Delaware in 3Q2023 that was less than projected, management said. This mainly was attributed to extended periods of heat across New Mexico and Texas and about 200 MMcf/d of lower-margin high-pressure volumes that moved off the system.
“I would look at the third quarter as an anomaly, certainly,” said Targa’s Pat McDonie, president of gathering and processing.
McDonie said despite the uncertainty of winter weather and the impact it may have on production, “the underlying business is solid.” Activity levels are high, as is confidence, “as indicated by what we’re investing in Delaware for future volume growth.
Recent merger announcements would reduce the number of producers operating in the Permian. Still, Targa's solid relationships with parties, "whether you're talking about Exxon or Chevron or others," will ensure continued volume growth, said Meloy.
"We have good relationships and really growing relationships with them," Meloy said. "We handle a lot of their volumes today."
Targa has contracts with the companies that have recently announced mergers, typically long term, and will "have to see how it plays out over time," Meloy said.
"When you look at some of those parties mentioned, they have pretty robust growth outlooks," said Meloy. Over the longer term, "I think we're optimistic on what it ultimately means for our underlying business.
Logistics And Transportation
NGL pipeline transportation volumes were a record 660,000 b/d and fractionation volumes remained strong, averaging 793,000 b/d during 3Q.
Targa’s Grand Prix NGL pipeline deliveries into Mont Belvieu increased 6% sequentially on higher third-party supply volumes. “Our fractionation complex in Mont Belvieu continues to operate near capacity,” Meloy said.
Work is progressing on Targa’s Daytona NGL Pipeline. The $650 million project would transport volumes from the Permian and connect to the existing segment of Grand Prix in North Texas to move volumes to Mont Belvieu, TX.
Targa would own 75% of Daytona, while Blackstone Energy Partners is to own 25%. Daytona is expected to be in service by the end of 2024.
Targa also is progressing construction in Mont Belvieu on the Train 9 and 10 fractionators, both with a capacity at 120,000 b/d.
Capital Return
Targa’s estimate for 2023 total net growth capital expenditures remains unchanged at between $2.0 billion and $2.2 billion, with current expectations trending to the higher end of the range. Targa’s estimate for 2023 net maintenance capital expenditures is now about $200 million.
Targa reported net income of $220 million ($1.17/share) for 3Q2023, above the $193 billion (85 cents) in the same quarter a year ago. The company also announced expectations for a 50% year-over-year increase to the 2024 common dividend. Targa plans to hike the dividend to $3.00/share, up from $2.00/share.
